Seven & i convenience store recovery hits wider retail headwinds

SEVEN & i Holdings will show some signs of recovery at its convenience stores in Japan and North America when it reports quarterly results, but that may not be enough to stave off investor pressure to engage with a takeover approach from Alimentation Couche-Tard.

Overall, operating profit is set to drop – analysts estimate by 22 per cent – from a year earlier largely due to its weaker retail business, which the company has already pledged to divest. The question is whether the Japanese retailer’s early results in the effort to turn around its more important convenience store business will be enough to keep investors on its side.

“We would like to see if margins are stable or perhaps, improved slightly especially for the US operations” as cutting costs proved to be challenging, said Lorraine Tan, an equities analyst at Morningstar Asia.

In the US, where it gets half of its profits, monthly in-store sales rose slightly in November for the first time in 14 months, the company said last month. In Japan, sales also advanced after promoting lower-priced products.

The stakes are high for a company that has become a symbol of efforts to unlock value from staid Japanese corporations. Seven & i has been spurred into radical action to fend off Couche-Tard’s approach, embarking on a separation of its domestic supermarkets and retail business in order to focus on its convenience store operations. Its founding Ito family is also leading a competing proposal to take the company private at a nine trillion yen (S$78 billion) valuation to trump the Circle K operator’s 7.5 trillion yen bid.

Seven & i’s stock is up almost 50 per cent from an August low, spurred on by that offer. Still, reflecting some uncertainty about the offers and the retailer’s restructuring plan, its current market valuation still hovers only around 6.3 trillion yen.

For the quarter that ended in November, analysts are projecting, on average, operating profit of 132 billion yen, a 22 per cent decline from a year earlier, according to estimates compiled by Bloomberg. Quarterly sales are seen mostly flat, at three trillion yen.

Chief financial officer Yoshimichi Maruyama will lead a company briefing on the results after the market closes in Tokyo on Thursday (Jan 9); chief executive officer Ryuichi Isaka is not scheduled to attend.

Yet, the third-quarter results may not have much impact on the shares, as the market is focused on the outcome of the company’s plans to split and development of the proposals, Tan said, adding that restructuring “remains the main driver”. BLOOMBERG